Potash Corp. Rivals Seen Following With Cuts

A worker prepares a railcar to transport potash from the Potash Corp. of Saskatchewan Lanigan mine in Lanigan, Sasketchewan. Photographer: Geoff Howe/Bloomberg

Dec. 4 (Bloomberg) -- Potash Corp. of Saskatchewan Inc.’s
decision to cut 18 percent of its workforce and reduce capacity
probably foreshadows similar actions by North American rivals
amid a price war in the $20 billion global potash market.

Potash Corp., the world’s largest fertilizer company by
market value, said yesterday it will close a Canadian potash
mine, lower output at another and halt a processing mill.
Calgary-based Agrium Inc. and Mosaic Co. of Plymouth, Minnesota,
are likely to follow with job and capacity cuts, said Peter
Prattas, an analyst at Cantor Fitzgerald LP, and Mark Gulley, an
analyst at BGC Partners LP.

“Something has to give,” Gulley said yesterday in a
telephone interview from New York. “They have to be looking at
the same issues in terms of price and profit-margin pressure.”

The potash industry has been in turmoil since the end of
July when Russia’s OAO Uralkali, which produced more of the crop
nutrient last year than any other company, quit a sales accord
with its Belarusian competitor. Uralkali’s strategy now is to
raise output to gain a bigger market share. That’s spurred some
customers to defer purchases in anticipation of lower prices.

Richard Downey, an Agrium spokesman, declined to comment on
whether his company plans moves similar to those of Saskatoon,
Saskatchewan-based Potash Corp. He said Agrium is constantly
monitoring costs and in October announced a plan to lower costs
and increase returns.

Canpotex Exports

Potash is a form of potassium used by farmers to strengthen
plant roots and boost resistance to drought. Global sales are
valued at about $20 billion a year, according Neil Fleishman, an
analyst at Green Markets. The market is dominated by producers
in North America and the former Soviet Union.

Exports from Agrium, Mosaic and Potash Corp. are
coordinated via their Canpotex Ltd. joint venture. Uralkali and
Belaruskali, the state-owned supplier in Belarus, had a similar
venture until July 30 when the Russian company ended the accord.

Potash Corp. said yesterday it will eliminate about 1,045
jobs at its potash and phosphate-fertilizer operations in
Canada, the U.S. and Trinidad. The job losses are the worst for
the company’s potash division since 1987, Chief Executive
Officer Bill Doyle said in a telephone interview yesterday.

‘Slow Growth’

The company will stop production at the Penobsquis mine in
New Brunswick, suspend output at one of two mills in Lanigan,
Saskatchewan, and reduce output at its Cory plant, also in
Saskatchewan.

Potash Corp. said yesterday in a statement its inventories
and remaining capacity will allow it to supply more than 10
million tons of potash in 2014. Its previous forecast was for
capacity of 13 million tons next year.

“We don’t believe this changes the prevailing outlook for
lower potash pricing and high competition among the producers of
Canpotex, Russia, Belarus,” Matthew Korn, a New York-based
analyst at Barclays Plc, said yesterday in a note.

U.S. retail potash prices have fallen 14 percent since July
30, when Uralkali quit its sales accord and said it would
increase output, according to data from DTN Energy. Potash Corp.
said it received an average of $307 a ton for third-quarter
sales, down 28 percent from a year earlier. Korn sees Asian
potash prices averaging $300 through 2017.

Margin Squeeze

Gross per-ton margins at Potash Corp.’s potash business
dropped 45 percent to $148 a ton in the third quarter. The
company said the measures announced yesterday will help to
reduce its potash costs by $15 to $20 a ton next year.

Potash Corp. rose 1.7 percent to C$34.39 at 4 p.m. in
Toronto trading. The shares have dropped 15 percent this year
while the S&P/TSX Materials Index has declined 33 percent.
Agrium, which also has a farm-retail unit, has declined 0.3
percent in 2013, while Mosaic is down 15 percent in New York in
the same period.

Profitability at Mosaic, the largest North American
producer after Potash Corp., also has come under pressure, its
third-quarter potash gross margin sliding 59 percent to $184
million.

Agrium’s potash gross profit rose to $27 million in the
quarter, up from $23 million a year earlier, partly because of a
shorter maintenance shutdown period. The company operates just
one mine, near Vanscoy in Saskatchewan, making it the smallest
of the three Canpotex members.

Asian Growth

“None of the fertilizer producers are insulated,”
Cantor’s Prattas said yesterday in a phone interview from
Toronto. “All are impacted by lower prices and lower volumes.”

Doyle sees growth next year in Brazil, China and India. He
said yesterday that global demand will rise to 56 million to 58
million tons, up from an estimated 52 million tons in 2013.

“We have ample capability to supply that market,” Doyle
said, referring to his 2014 projection. “Even if it’s much
better than we expect, which we don’t believe, we’d have the
ability to respond.”